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  • Option to convert to Fee for Service

    23 June 2020


    fee for service header image

    Following the Australian Securities and Investments Commission (ASIC) royal commission and the Life Insurance Framework (LIF) regulatory changes to how you and your clients can adjust how commissions are paid, AIA Australia (AIAA) have been reviewing the Fee for Service structure on current inforce policies.

    As a result, AIAA are now able to accommodate these changes and can cater to adviser preferences of moving away from commission based structures to a fee for service based structure should you choose.

    If you and your client agree to a fee for service based structure, you won’t receive any commission payable on the policy moving forward, however this will result in an ongoing discount being applied to your client’s premiums.

    This option is only available to inforce policies. For new applications, you will be required to adjust the discounts applied to the policy within the quoting system.

    If you want to change to a Fee for Service structure, please contact your State Service Team or Client Development Manager.

    Frequently asked questions

    Which policies are eligible to convert to Fee for Service?

    In order for a policy to be eligible to convert from a commission based structure to a fee for service based structure, the policy must satisfy the below criteria:
     

    • Policy must be outside of any applicable responsibility periods;
    • Policy must not already be on a P70 (30% discount) commission structure;
    • Policy must be inforce and paid up to date and;
    • The change must be requested by the servicing agent or dealergroup.

    What will be the discount that is applied to the policy upon conversion to fee for service?

    The discount that is applied to the policy when converted to fee for service would follow the below formula:
     

    FFS discount (%) = 1 – ((1 – current policy dial down discount %) x (1- trail commission rate %))
     

    Example:

    Policy A is on P80, with a dial down discount of 20% and an ongoing commission rate of 10%, the discount applied for a FFS change would be:

    FFS discount (%) = 1 – ((1 – 0.20) x (1 – 0.10))

                                    = 1 – 0.72

                                    = 0.28 = 28%


    Accounting for both the current dial down discounts as well as the trail commission rates on the policy will ensure that the client will not be disadvantaged by any conversions on the adviser’s end.

    Can a client request to convert their own policy from a commission base to fee for service base?

    No. Clients will not be able to request a conversion to fee for service on their own policy. This change must come directly from the servicing agent or their respective dealergroups. This is to ensure that we are in line with our distribution agreements. If a client requests this change, we will direct them to their servicing agent for further information and assistance.

    How long does the fee for service agreement last on the policy?

    The changes will be indefinitely applied to the policy. Currently, we are not offering any ability to convert back to a commission based structure for policies.

    How do I see the premiums that are expected to be paid by the client once converted to fee for service?

    Our quoting software will have the functionality to generate quotes showing the change to fee for service and subsequent premium changes that will result. The quotes will continue to be generated via our usual channels.

    What fees are able to be charged once the policy is converted to fee for service rather than commission?

    The fees that are chargeable on the policy will be solely up to the discretion of the servicing agent and/or dealergroup and client. AIAA will not be determining the fees chargeable for a fee for service agreement.

    Will there be any changes to the policy once converted to fee for service?

    No. The policy terms and coverage will continue as per normal, the only change that is applied to the policy would be the additional discount that is applied as a result of the servicing agent/dealergroup foregoing any trail commissions.

    Is it possible to have a mixture of both commission and fee for service?

    No. It is not possible to have both commission and fee for service on a policy in any given situation. The policy can either be on a commission based structure or a fee for service based structure.

    Are there any underwriting requirements in order to proceed with a fee for service conversion?

    No. Underwriting will not be required for a conversion to fee for service to take place. AIAA will only require a signed request from the servicing agent/dealergroup. Quotes will not be mandatory for requesting this conversion.

    Is there any option to backdate the conversion to fee for service?

    No. Unfortunately there will be no option to backdate a conversion to fee for service. The changes will be applied at the next paid to date on the policy.


     

    Contact AIA

    1800 333 613

    PO Box 6111
    Melbourne VIC 3004

    enquiries@aia.com.au

    AIA Global aia.com

    Contact AIA

    1800 333 613

    PO Box 6111
    Melbourne VIC 3004

    enquiries@aia.com.au

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    Copyright © 2021. AIA Group Limited and its subsidiaries or affiliates. All rights reserved. Priority Protection and Priority Protection for Platform Investors products are issued by AIA Australia Limited (ABN 79 004 837 861, AFSL 230043). AIA Vitality, a personalised, science-backed program that supports members every day to make healthier choices, is available with eligible products issued by AIA Australia. AIA Health with AIA Vitality is issued by AIA Health Insurance Pty Ltd ABN 32 611 323 034, a registered private health insurer governed by the Private Health Insurance Act 2207, Private Health Insurance Rules 2007 and the AIA Health Insurance Pty Ltd Fund Rules. The information on this website is current as at 14 January 2021 and may be subject to change. It is general information only and is not intended in any way to be financial, legal, tax, health, medical, nutritional or other advice. You should consider your own personal circumstances and needs and view the relevant product documents, fact sheets, fund rules and terms and conditions before making a decision to acquire such products. If necessary you should obtain professional advice from a financial, tax, medical or health professional. Unless expressly stated, any views or expressions of opinion (including any video content) do not represent the opinion of AIA.
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